Exam 14: Ethics, Tax Avoidance and Evasion

Deontological ethics is more concerned with what principles?

What is tax evasion?

Martin is a lawyer who earns $300,000 per annum. He also purchased a small farm in the Adelaide Hills (now worth $800,000) as a way to reduce his taxable income as he plans to sell just a few livestock every now and then. If in this last tax year Martin had sales of livestock of $14,000 (his total income from the farm) and incurred farm expenses of $38,000, can he use the loss from his small farming business to reduce the tax payable on his lawyer's salary of $300,000?

Which is not one of the 5 fundamental principles contained in APES 110Code of Ethics for Professional Accountants?

What is tax avoidance?

What type of purpose must be present for Part IVA to apply to most schemes?

Wendy and Steve are the directors and shareholders of Equinox Pty Ltd, an Australian resident private company that owns and operates a grocery store as a family business. Wendy and Steve's three children attend expensive private schools and the fees are due very soon. When Steve inspects the balance of his and Wendy's joint bank account, he sees that there is very little cash available to pay for these fees, but he sees that the company's bank account has plenty of funds due to having recently received a large tax refund. With Wendy peering over his shoulder, Steve pays the school fees directly from the corporate bank account. 'It doesn't matter', he says to Wendy, 'It's our company so it is our money anyway!'. What are the tax consequences of Steve's actions? What remedies might you recommend to negate these consequences.

What type of purpose is required for the Diverted Profits Tax rules to apply?

K Pty Ltd and M Pty Ltd agreed to prepare loan documentation under which K Pty Ltd agreed to repay certain interest on a loan. The parties did not intend the documents to give rise to actual transactions and no amounts of interest (pre-paid or not) were ever paid on the loan. How would this arrangement, under which interest was purported to be paid, be best described for tax purposes?

Molly purchases some office furniture for sole use in her business and it has an effective life of 15 years. She makes a deliberate choice to depreciate this furniture using the diminishing value method since it provides her with a larger tax deduction, and lower taxable income, in the early years of the furniture's useful life compared the prime cost method. Has Molly obtained a tax benefit in accordance with section 177C? Explain your reasoning.

Johann recently immigrated to Australia and was advised by a financial advisor, Dodgy, Sharp & Moore, to invest in a sandalwood plantation scheme so that he can claim large upfront tax deductions. The scheme is unlikely to be successful as it involves very large management fees, non-recourse loans and the sandalwood will not produce any income for at least 7 years. How could this arrangement be described for tax purposes?

James is a qualified welder who has commenced business on 1 July 2019. James is contracted by Big Projects Pty Ltd to provide welding services for a period of 12 months on a new project. The contract requires that the work must be done by James personally but Big Projects will supply all the tools needed and James will be paid on an hourly basis of $50 per hour. James will not be liable to rectify any defects in the work, but Big Projects can terminate the contract if the work is not satisfactory. James does not have any other clients for the year ended 30 June 2020. Do the personal services income rules apply to James?

Boris worked for ABJ Electrical as an employee for 12 years but on 1 July 2019 he was asked by his employer to obtain an ABN and to submit invoices as he would be paid as a contractor. Boris's work duties have not changed at all and he only provides services to ABJ Electrical is still paid on a hourly rate and Boris does not supply his own tools or have his own liability insurance (as he is covered by ABJ's policy). How will this arrangement be treated under Australia's specific anti-avoidance rules?

Large Ltd is a Significant Global Entity seeking to establish operations in Australia for the first time since it is a new market for the company, but it regards Australia as a relatively high taxing country, so it wants to reduce its presence in Australia. Small Pty Ltd is incorporated in Australia with Mary as the sole director and Mary and her spouse as the sole shareholders to sell products Large Ltd's products to the Australian public through on behalf of Large Ltd on commission with the remainder of the profits on each transaction being paid to Large ltd. Would an anti-avoidance rule be useful in combating this activity? If so, briefly explain which one and how it might be useful.

What action can the Commissioner take under Part IVA when it applies to a DPT scheme?

What is egoism?